How Magic Johnson Uses His Name To Exploit Low-Income Consumers

The former Lakers star has made a business out of his reputation for being a good guy — most notably as the new face of the Los Angeles Dodgers' ownership group. But he's also got a history of endorsing dodgy products for the working poor.

With his Los Angeles Dodgers up five games in the National League West, Magic Johnson — also a sought-after motivational speaker and bestselling author — is getting more press than he has in two decades. He says he paid $25 million for his stake in the team, making him one of its smaller equity holders, but he's still the public face of the franchise, prominent at the ballpark and press conferences announcing big signings. It's the peak of the entrepreneurial rise that Johnson embarked on when he retired from the NBA for the first time in 1991. He's done it all with his good guy reputation intact: he's received accolades for bringing Starbucks into urban areas the company had previously thought would be unprofitable, and he has, of course, done more than anyone to raise awareness about HIV. His company frames its mission statement this way: "Magic Johnson Enterprises serves as a catalyst for driving unparalleled business results for our partners and fostering community/economic empowerment by making available high-quality entertainment, products and services that answer the demands of ethnically diverse urban communities."

That's a worthy goal. But consumer advocates who specialize in monitoring businesses that exploit America's working poor are not always pleased with Johnson and the ways he's made his money. And while the social merit of ventures to bring fast food into urban areas — Magic Johnson Enterprises has had interests in Burger King franchises — can certainly be questioned, they're more concerned by his deals with the financial services industry. They say that Magic has endorsed products and companies that profit by hooking consumers into ill-advised credit agreements.

Among Johnson's business endeavors and endorsement deals:

A 2009 commercial for Jackson Hewitt's refund anticipation loans.

Loans so controversial and high-interest that the Military Lending Act banned service members from receiving them. "If you need cash quickly, Jackson Hewitt has the Money Now loan. It's fast, it's simple — it's money like magic," he said in the commercial, describing the loans whose annualized interest rates ran as high as nearly 500%. Hewitt and other tax preparers have since stopped offering the loans as a result of regulatory changes.

Tim Boyle / Getty Images

A 2009 commercial for Rent-A-Center.

The company's high-fee rent-to-own stores, mostly in low-income areas, have drawn the ire of multiple states' attorneys general. Ed Mierzwinski, federal Consumer Program Director for U.S. PIRG, says that "They promise the American dream of ownership and then they take it away with a cruel contract. They are selling something over time at triple-digit interest rates but they want you to think you're renting it and it's almost free." Gary Rivlin, author of Broke, USA: From Pawnshops to Poverty, Inc., is equally skeptical: "The brilliance of rent-to-own is they figured out how to sell a person a TV for $1,500 that would cost something like $600 with a credit card. Really, Magic? I loved you, I rooted for you, and that's what you're lending your name to?"

A partnership, beginning in 2003, with now-defunct Washington Mutual.

The deal was to open a chain of home loan centers in underserved communities and the stated purpose of those locations was to promote prime borrowing, but ultimately, Washington Mutual was bankrupted by subprime exposure, and the Johnson-affiliated loan offices all closed.

A prepaid, Magic-branded credit card.

The Kardashians were widely criticized for using their names to sell prepaid debit cards with unnecessarily high fees, and Magic Johnson has one, too. But few have noticed, with the exception of a few personal finance blogs. "At the end of the day, cost and convenience, not branding, should be a prospective prepaid card user's biggest concerns," Odysseas Papadimitriou of CardHub.com wrote of the card. "The MAGIC Card leaves something to be desired on both fronts."

(Magic Johnson Enterprises declined to provide anyone who would comment on any of Johnson's forays into financial services.)

Marginal celebrities often auction their credibility to the highest low-rent bidder: Montel Williams shills for payday loans. George Lopez and Russell Simmons have sold prepaid debit cards. Hulk Hogan, post-divorce and reportedly struggling financially, did commercials for Rent-A-Center in 2010. But Magic Johnson is not a D-list celebrity and, as his stake in the Dodgers indicates, he is not desperately in need of money.

"You would think the advantage of being Magic Johnson is never having to sell your name to low-rent enterprises," says Rivlin, the Broke U.S.A. author. "But then you'd be wrong."

Why doesn't Magic take more heat? Maybe the Magic Johnson Award provides a clue. Each year, the members of the Pro Basketball Writers Association give said award out; when Steve Nash won it two years ago, Arizona Sports ran the news under the headline "Steve Nash wins Magic Johnson Award for being a good guy." That's the gist of the prize, which is usually awarded to a well-liked player with a big smile. But the Johnson Award, first given in 1996, isn't technically for being a good guy. It's officially for "cooperation with media and fans," and that's something that Johnson always specialized in during his Lakers career. He's a natural glad-hander, and his charisma in dealing with the press and public has served him well during his post-career transformation into a business icon. He's accessible, friendly, and powerful — not the kind of person that someone in the sports press particularly wants to alienate with tough questions. But those questions still ought to be asked.